Implementing the Great Ideas in Finance
For nearly four decades, Dimensional has been combining its unique view of markets with rigorous academic research and expert implementation in pursuit of incre
Investment managers have access to the same academic studies. The difference comes down to determining what can be useful for investors and how to apply those insights in live strategies.
At Dimensional, we’ve been implementing the great ideas in finance for over 40 years. Our investment approach is grounded in economic theory and backed by decades of leading academic research.
Leading the Transformation
The field of finance has undergone a transformation since the early 1960s, when computers made it possible to process large amounts of data for academics to study. Until then, simple things we take for granted today—like calculating a rate of return or comparing performance across strategies—weren’t available. Computers also enabled new theories and models to be tested and helped organize the data.
Leading academics dug in and produced groundbreaking work on fundamental concepts like asset pricing, risk, and diversification. Several of these academics—who would later be recognized as Nobel laureates in economic sciences—were involved with Dimensional in its early days and remain closely involved today.
Dimensional’s founders were connected to this movement in academia and paved new paths applying these insights to real-world investing. To this day, Dimensional’s investment team keeps abreast of academic research from all around the world, and we’ve chosen to collaborate with some of the best researchers in the field doing pioneering work. Our investment team sets a high bar for research and its application because we want to pursue only those insights that we firmly believe can benefit investors.
What started in 1981 with the first assets entrusted to Dimensional still holds true today—every dollar invested has financial science at its core. Our culture of research, rigor, and the pursuit of truth has contributed to a transformation in the field of finance and continues to propel Dimensional forward in service of clients.
A Heritage of Leading Research
Starting with the Market
History has shown capital markets have rewarded long-term investors. Staying disciplined, particularly in tough times, takes having an investment framework. Our framework centers on market prices. Prices are updated in real time, all the time, and represent the most complete prediction of the future available to us.
Many studies highlight the challenges and costs for investors looking for “mistakes” in prices. Academics have long documented that there’s no compelling evidence to suggest that trying to find mistakes in markets has yielded better investment outcomes. This supports our belief that market prices are the best model we have for understanding expected returns.
We think it is possible to have higher returns than the market without having to outguess it by using the market as a starting point and building from there.
Framework Centered on Market Prices
Putting Financial Science to Work
Modern finance has led to many breakthroughs. Effectively using these insights requires organizing research in a meaningful way. One way we categorize research is by time horizon. Does the research provide insights about expected returns over the next minute, the next month, or many years down the line? Thinking in terms of time horizons helps us increase the likelihood of expected returns and manage risk each day.
We categorize differences in company size, relative price, or profitability as long-term drivers—or dimensions—because these expected returns have tended to persist over many years. For example, a small company trading at a relatively low price with high profitability has a higher expected return than a large company trading at a higher price with low profitability.
While long-term drivers impact our strategic allocations, we use a daily process to add value in other ways. Some variables have information over the next few days or months, so we account for them when generating buy and sell orders. We also identify more buy and sell candidates with similar expected returns than we need each day in an effort to keep trading costs low. Our process affords us flexibility, unlike many index fund managers who are constrained in what securities to hold and when to trade them.
The Pursuit of More
A well-diversified market portfolio can be a good portfolio for many investors. And while Dimensional seeks to outperform a market portfolio in many ways, returns are noisy and there can be periods of time when a particular driver doesn’t deliver. We account for this when designing strategies. Our goal is to help investors benefit from dimensions when they are realized and offer marketlike returns when they fall flat. We are also candid about the range of potential outcomes. Markets may be disappointing at times, but we don’t want investors to be surprised.
Our team processes millions of datapoints each day to help ensure portfolio decisions are based on current and useful information. In addition, we carefully manage responsibilities like corporate actions—such as stock splits, mergers, or spinoffs—to make the most of the securities owned. By starting with the market and adding value through robust daily processes, our goal is to help minimize risk and increase the likelihood of a good outcome.
By the Numbers
As of December 31, 2022
Delivering Results
When considering Dimensional or any money manager, it’s helpful to evaluate how well they’ve performed—not just in one or two handpicked strategies but across a broad range and over the longest time period available. Did they deliver what they said they’d deliver? Did they remain consistent in their approach? Have their solutions survived the test of time? And why should you have confidence they can repeat any success?
We apply one philosophy and have strategies dating back decades—including some that have been serving investors for over 40 years. Through time, we’ve experienced a wide range of market conditions, and clients have stayed with us. A track record this long is revealing and reinforces the importance of having an investment philosophy you can stick with.
We recognize that every dollar invested with us represents the hard work, savings, and dreams of investors all around the world. To deliver a better investment experience, we use our accumulated expertise, judgment, and skill to pull the right levers at the right time. That’s the Dimensional difference.
DISCLOSURES
Eugene Fama is a member of the Board of Directors of the general partner of, and provides consulting services to, Dimensional Fund Advisors LP. Ken French is a member of the Board of Directors of the general partner of, and provides consulting services to, Dimensional Fund Advisors LP. Robert Merton provides consulting services to Dimensional Fund Advisors LP. Myron Scholes was an Independent Director of the Dimensional US Mutual Fund Board from 1981–2021. Robert Novy-Marx provides consulting services to Dimensional Fund Advisors LP. Douglas Diamond is an independent director of the Dimensional ETF Trust and Dimensional’s US Mutual Fund Boards. Dimensional’s US Mutual Fund Boards refers to The DFA Investment Trust Company, DFA Investment Dimensions Group Inc., Dimensional Investment Group Inc., and Dimensional Emerging Markets Value Fund.
The information in this material is intended for the recipient’s background information and use only. It is provided in good faith and without any warranty or representation as to accuracy or completeness. Information and opinions presented in this material have been obtained or derived from sources believed by Dimensional to be reliable, and Dimensional has reasonable grounds to believe that all factual information herein is true as at the date of this material. It does not constitute investment advice, a recommendation, or an offer of any services or products for sale and is not intended to provide a sufficient basis on which to make an investment decision. Before acting on any information in this document, you should consider whether it is appropriate for your particular circumstances and, if appropriate, seek professional advice. It is the responsibility of any persons wishing to make a purchase to inform themselves of and observe all applicable laws and regulations. Unauthorized reproduction or transmission of this material is strictly prohibited. Dimensional accepts no responsibility for loss arising from the use of the information contained herein.
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“Dimensional” refers to the Dimensional separate but affiliated entities generally, rather than to one particular entity. These entities are Dimensional Fund Advisors LP, Dimensional Fund Advisors Ltd., Dimensional Ireland Limited, DFA Australia Limited, Dimensional Fund Advisors Canada ULC, Dimensional Fund Advisors Pte. Ltd., Dimensional Japan Ltd., and Dimensional Hong Kong Limited. Dimensional Hong Kong Limited is licensed by the Securities and Futures Commission to conduct Type 1 (dealing in securities) regulated activities only and does not provide asset management services.
Risks
Investments involve risks. The investment return and principal value of an investment may fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original value. Past performance is not a guarantee of future results. There is no guarantee strategies will be successful.
Diversification does not eliminate the risk of market loss.
CANADA
These materials have been prepared by Dimensional Fund Advisors Canada ULC. The other Dimensional entities referenced herein are not registered resident investment fund managers or portfolio managers in Canada.
This material is not intended for Quebec residents.
Commissions, trailing commissions, management fees, and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise noted, any indicated total rates of return reflect the historical annual compounded total returns, including changes in share or unit value and reinvestment of all dividends or other distributions, and do not take into account sales, redemption, distribution, or optional charges or income taxes payable by any security holder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated.
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